20.1 S CORPORATIONS Flashcards
WHAT ARE THE REQUIREMENT FOR S CORPORATIONS?
SEE SCREENSHOT
*A QUALIFIED RETIREMENT PLAN TRUST QUALIFIES AS A SHAREHOLDER,
CERTAIN ESTATE AND TRUST FOR THE BENEFIT OF THE INDIVIDUAL CAN BE SCORP HOLDERS
*FOR PURPOSES OF THE 100 SHAREHOLDER LIMIT, SHAREHOLDERS WHO ARE DIRECTLY RELATED AND NO MORE THAN SIX GENERATION REMOVED ARE TREATED AS A SINGLE SHAREHOLDER. COUNTS AS ONLY ONE
*IF ELECTION MADE WITHIN 3 1/2 MONTHS (FOR CALENDAR YEAR END) OR (2 1/2 MONTHS FOR TAX YEAR END) THE S STATUS IS EFFECTIVE AS OF THE FIRST DAY OF THE CURRENT YEAR. HOWEVER DURING THOSE MONTHS 3 1/2 (2 1/2) ALL REQUIREMENTS MUST HAVE BEEN MET. OTHER WISE THE ELECTION IS EFFECTIVE ON THE FIRST DAY OF THE NEXT YEAR.
WHAT ARE THE REQUIREMENTS AND EFFECTIVE DATES OF VOLUNTARY AND INVOLUNTARY TERMINATIONS?
THE CORPORATION MAY REELECT S TATUS AFTER THE 5TH TAX YEAR AFTER THE EFFECITIVE DATE OF TERMINATION.
SEE SCREENSHOT
WHAT ARE SEPARATELY AND NONSEPARATELY STATED ITEMS FOR AN SCORP?
CSI - PCP - TNT
NONSEPARATELY CALCULATE ORDINARY BUSINESS NET INCOME/LOSS
SEPARATELY STATED ARE NOT PART OF ORDINARY BUSINESS INCOME BECAUSE THEY ARE SUBJECT TO STATUTORY LIMITATIONS OR SPECIAL RULES WHEN REPORTED ON A SHAREHOLDER’S TAX RETURN.
REGULAR DEPRECIATION IS NOT A SEPERATELY STATED
HOW DOES AN OWNER OF AN SCORP REPORT THEIR SCORP SHARE ON THEIR PERSONAL TAX RETURNS?
HOW DO YOU CALCULATE THE ENDING SHAREHOLDER’S BASIS OF AN SCORPORATION?
WHAT IS AAA?
FOR S CORP WITH ACCUMULATED EARNINGS PROFITS (AEP) AT TIME OF CONVERSION, A SEPERATE ACCOUNT MUST BE MAINTAINED.
THE AAA IS USED TO DETERMINE THE AEP FROM PRIOR C CORPORATION YEARS ARE TAXED AS DIVIDENDS WHEN DISTRIBUTED.
HENCE, SCORP DO NOT ISSUE DIVIDENDS LIKE C CORPS HOWEVER DISTRIBUTIONS OUT OF AEP ARE TAXABLE DIVIDENDS
TAX-EXEMPT INCOME AND RELATED DEDUCTION DO NOT AFFECT THE AAA (THESE GO INTO OAA)
WHATS THE ORDER OF DISTRIBUTION FOR AAA?
WHAT IS A SHAREHOLDER’S TAX BASIS USED FOR?
USED TO DETERMINE THE DEDUCTIBILITY OF S CORPORATION LOSSES, TREATMENT OF DISTRIBUTIONS, AND GAIN OR LOSS ON DISPOSITION.
BECAUSE THE LOSS OR GAIN THAT FLOW’S THROUGH TO AN INDIVIDUAL IS LIMITED TO YOUR BASIS, PAY ATTENTION TO WHAT FLOWS THROUGH.
THE SHAREHOLDER’S BASIS MAY NEVER FALL BELLOW ZERO
*IF CASH DISTRIBUTION EXCEEDS BASIS, THEN BASIS IS REDUCED TO ZERO AND ANY EXCESS DISTRIBUTION IS TAXED AS CAPITAL GAIN.
BASIS IS ADJUSTED DURING EACH ACCOUNTING PERIOD FOR THE SHAREHOLDER’S PRO RATA SHARE OF THE CALCULATED,
1) ORDINARY INCOME/LOSS.
2) SEPARATELY STATED ITEMS,
3) CONTRIBUTIONS, AND DISTRIBUTIONS.
SUSPENDED LOSSES ARE CREATED IF NEED BE AND CARRIED FORWARD AND USED WHEN BASIS IS RESTORED.
WHAT IS THE DEBT BASIS OF AN SCORP SHAREHOLDER?
DEBTS OF THE SCORP HAS NO EFFECT ON SHAREHOLDER’S BASIS HOWEVER, DIRECT LOANS MADE BY THE SHAREHOLDER TO THE CORPORATION WILL CREATE A DEBT BASIS.
CORPORATE LOSSES ALLOCATED TO A SHAREHOLDER ARE FIRST DEDUCTIBLE TO THE EXTENT OF STOCK BASIS AND THEN TO THE EXTENT OF DEBT BASIS.
COPORATE GAINS ALLOCATED TO A SHAREHOLDER RESTORE THE DEBT BASIS FIRST ANY ANYTHING REMAINING INCREASES THE STOCK BASIS.
WHAT IS THE TREATMENT OF HEALTH INSURANCE PREMIUMS AND FRINGE BENEFITS PAID FOR EMPLOYEES BY AN S CORPORATION?
HEALTH INSURANCE PREMIUMS AND FRINGE BENEFITS PAID FOR EMPLOYEES BY AN S CORP ARE DEDUCTIBEL IN COMPUTING THE ENTITYS ORDINARY INCOME. IF PAID FOR AN EMPLOYEE WHO IS ALSO A SHAREHOLDER OWNING MORE THAN 2% OF THE ENTITY IT IS INCLUDIBLE IN THE EMPLOYEES GROSS INCOME.
